Tax transparency would take bite out of future Apples

Apple's clever tax-avoidance strategies, revealed at last week's highly publicized Senate hearing, probably inspired more than a few copycats. What company, after all, wouldn't want to sidestep billions of dollars in U.S. taxes, as Apple did, by creating stateless Irish subsidiaries that owe no taxes anywhere?

Comment

By Bloomberg News

recordonline.com

By Bloomberg News

Posted Jun. 1, 2013 at 2:00 AM

By Bloomberg News
Posted Jun. 1, 2013 at 2:00 AM

» Social News

Apple's clever tax-avoidance strategies, revealed at last week's highly publicized Senate hearing, probably inspired more than a few copycats. What company, after all, wouldn't want to sidestep billions of dollars in U.S. taxes, as Apple did, by creating stateless Irish subsidiaries that owe no taxes anywhere?

Before executives file the paperwork, they should consider this: The hearing also inspired European Union leaders to push for a new law that would require corporations to reveal the amount of taxes they paid, country by country. EU officials put the measure on a legislative fast track in hopes it would become law this summer.

Such transparency could accomplish two things: First, by forcing corporations to reveal revenue, head count, profit and taxes paid per country, the EU would subject companies that pay less than their fair share to potentially embarrassing public scrutiny. Starbucks Corp. in December voluntarily paid Britain more than it legally owed to quiet a controversy over its low tax payments.

Second, similar public pressure could dissuade politicians in low-tax countries, including Ireland, Luxembourg and the Netherlands, from continuing to offer their countries as tax havens, depriving others of needed revenue.

If the EU wants companies to pay more tax, it would be far better simply to amend its tax laws. But behavior modification through transparency is the next best thing. The tactic makes such good sense that the United States, and individual states, should do the same.

As two left-leaning advocacy groups reported in 2011, many U.S. corporations pay little income tax to the states, on top of low federal taxes.

Competition to attract investment is a main reason for the decline in state tax payments. When California offers generous research-and-development credits to attract manufacturers, other states must match those tax breaks or watch jobs move across the border.

Companies shouldn't be faulted for seeking the best tax deals they can find, and states are right to try to lure jobs. But public officials need to do a better job of ensuring that the breaks they're offering to corporations are in taxpayers' interests. The Pew Center on the States said in a study published in April 2012 that half the states hadn't taken basic steps to find that out.

Some well-intentioned breaks, such as the film production tax credits that 44 states now offer, may have gone too far.

Here's another way to take advantage of transparency's positive effects: Require companies to disclose what they actually pay in federal income taxes.

The Securities and Exchange Commission could make tax transparency a reality by requiring publicly traded companies to report actual taxes paid to federal, state, local and foreign governments. Investors should urge the SEC to adopt this change.

Unless states know what economic benefit they are getting in return, tax privileges can become another form of corporate welfare. Taxpayers at least deserve to know who's paying what to whom — or not.